Protectionism and Politics: Debating the McKinley tariffs

The year 1893 began with optimistic projections for the year ahead: Kansas City’s economy, thought the editors of the Star, had left behind the depression that followed the boom years of 1884 to 1888. The city had “never entered upon any year in her remarkable history with a firmer hope and expectation of great achievement than she feels to-day,” they enthused early in early January, “and there is nothing whatever to cast a shadow upon her bright anticipations.” Philadelphia and Reading RR logo

But there were signs of trouble. Days before Grover Cleveland was inaugurated for a second term, the Philadelphia and Reading Railroad, deeply in debt, went into receivership, heralding a similar fate for other railroads and thousands of companies in coming months. In April the $100 million gold reserve floor -- symbolizing the soundness of U.S. currency -- collapsed as foreign investors and U.S. citizens rushed to convert paper treasury obligations into gold. In May stocks on the New York Stock Exchange crashed, and by June banks were failing around the country.

Although the Kansas City Journal claimed early in June that Kansas City was not “in the least danger. No banks have gone down,” and the Star assured its readers that the crisis had passed, a month later banks on both sides of the state line were suspending withdrawals or failing as frightened depositors tried to withdraw their money, mirroring conditions across the country.

As with all great economic downturns, the causes were a subject of debate. The Kansas City Star called the 1893 panic “a senseless scare,” since it was occurring amidst “unquestionable evidence of great prosperity, side by side with the most depressing complaints of business dullness and the most gloomy predictions of financial disaster.” The Journal similarly suggested it was all a matter of the public’s fearful attitudes and if people would just “Think less of the financial situation” they would “find that it affects you very little.”

Politicians, naturally, didn’t hesitate to blame opponents for the crash, and since Republicans had been running the government for over three decades it was easy for the new Democratic executive and Congress to put the blame on G.O.P. policies, specifically the Sherman Silver Purchase Act and the so-called McKinley tariffs of 1890.

Symbolic of the partisan divide was the tin plate issue. Tin plate had a host of domestic and industrial uses. Until 1890 it was mostly imported in large quantities from Great Britain, especially Wales. [picture of tinware] Republicans promised that heavy tariffs would stimulate the growth of U.S. tinplateDomestic tin plate manufactures manufacturers; Democrats thought the scheme was a failure. The Democratic Kansas City Times noted that U.S. makers were not making enough plate while U.S. consumers continued to pay the cost of the tariff: “It’s paying very dear for a theory,” the editors complained.

Indeed, since the imposition of the McKinley tariff on industrial goods produced abroad, named for then Ohio Republican Representative William McKinley, later Ohio governor and President,  the price of tin plate had risen in the U.S., though fallen abroad, the paper reported  A major U.S. tin plate manufacturer closed, faulting the economic depression, and laid off its workers, all of them Welshmen, according to the pro-Democrat Star, but the Republican Journal attacked the Star for misrepresenting the situation and for gloating unpatriotically over the industry’s problems. Production, the editors insisted, was doing well, outcome had increased over the past year by more than 500 per cent: “Which of our industries that have grown up to be great self-sustaining institutions, making the nation stronger and richer, has ever shown a more promising early growth?” they asked.

Cleveland called a special session of Congress for August, putatively to enact repeal of the Sherman Act, which required the treasury to corner the market on U.S.-produced silver in order to increase the metal’s international value relative to gold, but tariff laws were expected to also be on the docket. 

McKinley – running for a second term as governor of Ohio – promptly blamed Cleveland for deepening the financial crisis by allowing gold reserves to fall below what Cleveland himself had identified as the Cleveland as juggler“danger line,” and for creating uncertainty on tariff reform and repeal of the Sherman law. The Journal published a cartoon of the new President as a worried-looking circus performer, balancing on a ball and trying to keep Civil War pensions, tariffs, and other problems in the air.

As the special session neared and the financial crisis worsened, it became clear that although Cleveland himself had made no mention of it, tariff reform would be as important as financial reform; it was, commented the Star,  a key issue in the election which brought the Democrats to power in 1892. Various tariff reform bills were reported to have been submitted to Cleveland, some perhaps by “silver men” hoping to create confusion, according to the Star.

In advance of the special session, partisan divisions became more intense and accusatory.  Republicans, led by McKinley, charged the Democrats with creating “suspense in financial circles” by proposing change in the country’s industrial legislation; the Star rightly predicted that McKinley was preparing for a presidential run in 1896 with protectionism as its keynote.

The Journal’s editors argued that “the silver question” was a diversion orchestrated by Democrats: “They persistently harp on the silver question as the cause of the trouble because they have already discovered that ultimate developments are certain to expose the fallacy of the party’s free trade argument, and are determined to divert the public mind from the subject as long as possible.” When the Democrats took over, claimed the editors, industries such as woolen goods manufacturing were in good shape; now, there was a depression, owing to Democrats’ threats to change tariff policy. The editors even suggested that the Cleveland administration had made a nefarious bargain with Great Britain to create a silver scare, “thus pulling the wool over the eyes of the people […].”

In another editorial, the Journal editors claimed that lack of confidence in the future was the cause of “financial stringency.” The Sherman law, they wrote, added liquidity to the treasury, as did massive immigration, yet money was not to be had because of “a threat made by the party in power in its platform, on which it elected Cleveland and a majority in congress.” The silver scare was, they suggested, a “political conspiracy.”  

When the giant Amoskeag cotton mills in Manchester, New Hampshire, closed, throwing thousands of employees out of work, the Journal insistedAmoskeag cotton mills that the problem was not scarcity of money but the intention of the Cleveland administration to “throttle the industries of the country and trust to luck for a way out of the panic that must ensue.” Stagnation, said the paper, took the place of production and “the plotters became alarmed. They then entered upon a new conspiracy. They had taken the contract to deliver the American workingman over to the mercy of free trade England, but the panic which they saw approaching became a menace to the success of their scheme.”

The silver scare, went the Republican narrative, was contrived by the Democrats to hide the conspiracy. If Cleveland would only promise to leave the McKinley law alone for three years, “there will be an end to the present depression […].” Falling wages, high unemployment, peaking at over 14%, a collapse in foreign trade, all were caused, in the Journal’s view by “universal dread of the tariff changes threatened by the Democratic party,” in contrast to the years of “glorious prosperity” after the tariffs’ enactment in 1890. As evidence, the paper provided opinions from fifteen Pittsburgh firms, each claiming that “fear of tariff changes,” not the depression, had caused them to lay off workers.

The Journal also criticized the fiscal effects of reducing tariffs, since federal government revenues were chiefly derived from them.  The so-called “Wilson bill” before Congress would create a sizable federal deficit that could only be filled by raising taxes, probably on incomes. This, the paper argued, would be impractical, since incomes fluctuated so much during economic downturns as to produce unreliable returns. The nine members of the ways and means John Tarsneycommittee, including Missouri congressman John Tarsney from Kansas City, were accused in the Journal of having no knowledge of business. They had never “made a dollar by any sort of practical business. […] No other nation on earth was ever guilty of such folly.”

Other nations, the editors remarked in a later editorial, without evidence or example, put qualified people in charge, but the U.S. has nine lawyers on the ways and means committee, none with any special qualifications: “This is one of the dangers of free government,” they conclude: “the ignorant in power.”

Democrats, of course, had a different explanation for the depression, hanging all the blame on McKinley and the GOP. The Sherman law, associated with Ohio Republican senator John Sherman, had completely failed, the Star held. It had not increased the monetary value of silver. On the contrary, not only had silver’s value decreased as production of the metal around the world ramped up, U.S. gold reserves were also drained, since treasury notes issued in silver could be redeemed in gold at official parity rates, when a silver dollar was worth less than two thirds of its gold equivalent. Financial “stringency” – shortage of money – resulted.

Ultimately, Democrats put more blame on tariffs than currency for the depression, perhaps because tariffs were more directly connected to growing popular resentment of industrial monopolies. Republican legislation since the Civil War, said the editors of the Kansas City Times, had “fostered monopolies and strengthened the power and influence of trusts and organized capital against the privileges and rights of the average citizen.” It was the labor and “members of the great middle class” who “have been outclassed and forced to accept the crumbs that have fallen from the table of monopolies, fostered and built up by Republican favor.” The tariff system, the editors claimed, was the bulwark of this system of legislation. The fact that a tycoon like Andrew Carnegie opposed tariff reform, claiming it would harm the iron and steel industries, would have been seen by many as a sign of the need for reform.

Democrats in 1893 liked to be seen as the free trade, limited government, Jeffersonian party of the common man. Thus John Tarsney of Missouri proposed a free trade agreement with Mexico, a measure favored mainly by his business constituents in Kansas City, who aimed to make the city a major entrepôt for trade with Mexico, but he also recommended a progressive income tax on the largest incomes -- from a 2 percent tax on annual incomes over $4,000 rising to 10 percent on incomes over $50,000 – to replace revenues lost to tariff reform. And in his state of the Union Address in December,  President Cleveland sold tariff reform as beneficial to “thousands who would be better fed and better clothed and better sheltered” by reduction of tariffs on life’s “necessaries.”  He also argued also that reduction of tariffs on raw materials would benefit laborers as much as manufacturers. The Times called the high tariff “the poor man’s income tax,” and “the most oppressive and the worst of all forms of income tax […],” since it is levied on the necessaries of life of the working class, who must spend all their income on life’s necessaries. Under a tariff tax, the editors estimate, the poor man pays in proportion to income a hundred times what the rich man pays:

The partisan Republican press, therefore, which is now denouncing the policy of levying an income tax, should have their hypocritical intentions exposed. A little reasoning will show to the laboring classes that the direct income tax is a method of reaching the wealthy classes, and compelling them to bear their share of the burdens for the support of the government.Wilson-Gorman tariff

The so-called Wilson-Gorman Tariff Bill passed the House after lengthy debate. It mandated moderate downward revisions in tariffs, especially on raw materials, with the shortfall in revenue to be made up by an income tax on incomes above $4,000, the equivalent of about $100,000 in current dollars.

In the Senate the bill was picked apart by senators, mostly Democrats, who added more than six hundred amendments to protect industries in their states. A Harper’s Weekly cartoon depicted Maryland Senator Arthur Gorman driving a chariot representing one of the special interests, the Sugar Trust, that undermined the Wilson reform, with the reluctant Cleveland hauled behind, chained to the chariot. Cleveland was said to be furious at the Bill’s provisions, but allowed it to become law without his signature.

Republicans also rejected the “reform,” despite its moderate nature, and predicted dire effects. The Journal printed  a list of items affected by the new tariff regimen, then in an editorial  predicted a loss to manufacturing of more than a hundred million dollars in labor due to increased importation of foreign manufactures, and still greater losses to those who “will suffer from the reduction of their wages by reason of the efforts of American manufacturers to meet the foreign competition.”

Removing the federal “bounty” on sugar, used to support sugar production, as the act proposed, would ruin the sugar industry in several states, including Kansas, the paper predicted. An unnamed “Southern senator” was cited as arguing that the tariff on imported sugar provided a handsome revenue and protected domestic sugar production in several states, including Kansas. The Journal editors sounded a nationalistic theme, saying that Democrats “propose to relieve foreigners of $72,000,000 customs duties and make our own citizens pay for it.” 

A pro-Republican periodical, the American Economist, said that Cleveland’s policy was to “tamper with the employment of 380,170 people working in the coal and iron ore industries,” even intimating that Cleveland wanted to admit coal duty free to benefit his friend William C. Whitney, who was developing coal mines in Nova Scotia. Nevertheless, most Republicans in the Senate pledged not to obstruct the bill’s passage, claiming that stability was needed.

The Democratic press, in contrast, played up the administration line that the reform would benefit consumers, the Star calling it a “radical reform […] unprecedented in many of its provisions,” and predicting that consumers would save $350 million dollars of what the paper called “tribute to manufacturers.” The McKinley tariff, wrote the editors, taxed most heavily “the cheapest articles of manufacture of general consumption so that the inexpensive woolen or cotton garments of the poor bore a far heavier proportionate tax than the costlier goods.” The paper assured its readers that the revenue deficit would be made up with an income tax on the wealthy or on large corporations, or both, but not by an increased whiskey tax.

Neither tariff reform nor repeal of the Sherman Silver Purchase Act had much immediate effect, positive or negative, on the financial collapse they were intended to remedy. The depression that began in 1893, now regarded as one of the worst in U.S. history, lasted at least six more years, with the national unemployment rate peaking at an estimated 14.5% in 1897, in some industrial states as high as 30% and even 40%.

 August 17, 2016